INFLATION OR MANIPULATION? RISE IN PRICES OF GOODS PARALLELS RISE IN SPECULATION OVER CAUSE
- With the continuing appreciation of the Armenian dram and the country’s economy on track for yet another year of double-digit growth, a dramatic increase in cost of essential foodstuffs on the market has created a shock among consumers. “I enter the shop and don’t know whether it is a dream or a reality,” pensioner Zardar Hakobyan says. “They said they would raise our pensions beginning next year. But what pension would keep pace with these skyrocketing prices? We won’t survive.”
Only during September bread and pasta prices grew by 20-30 percent, the price of one liter of vegetable oil increased by about 65 percent, and of one kilogram of butter by 45 percent. Butter that once averaged 1,400 per kilo (about $4.20) is now 2,200 (about $6.60); oil increased from 550 ($1.65) to 950 ($2.85) per liter.
Still at the beginning of the year, Central Bank Chairman Tigran Sargsyan stated that the level of inflation this year would be 4 percent, in fact decreasing as compared to the 5.2 percent inflation registered in 2006.
According to Sargsyan, the main macroeconomic indices for Armenia for the next three years had been specified by Central Bank, the government and the International Monetary Fund (IMF) according to which inflation in the years to come were gradually to decrease to reach 3 percent.
“A stable economic growth is accompanied by some low inflation, that is, a certain natural level of inflation is implied under the notion of stable prices,” a related analytical piece of Central Bank says. “For this reason, having in view the aim of achieving a stable economic growth in the long-term perspective central banks also project a certain low level of inflation.”
However, according to economists, no low level of inflation will be registered in Armenia this year for sure.
“In the case of real calculation, the rate of inflation in Armenia this year will be double-digit,” economist-analyst Eduard Aghajanov told ArmeniaNow. “Inflation will be more than 10 percent, meanwhile an inflation of 4-5 percent in many countries already gives rise to concerns.”
According to Aghajanov, the created situation first of all will damage the destitute stratum of the country’s population, including pensioners, lonely people.
“In case of inflation the economy will also incur damages,” Aghajanov said. “And in this case the causes of inflation require a serious study.”
And there are such studies.
According to a study of the State Commission for the Protection of Economic Competition, the prices for wheat imported to the republic have grown because, globally, stocks of wheat have reach low levels due to drought.
However, unlike wheat and bread products, according to Commission Chairman Ashot Shahnazaryan, there is “an essential difference” between the international and local prices for butter and vegetable oil and the motives of this difference will be examined within the next week.
However, before the examination and publication of the causes of inflation, the situation gave rise to various assessments, statements and analyses.
Taking into account the fact that the pace of inflation became noticeable after May, many, according to different estimations, consider the occurrence as a “logical” continuation of the parliamentary elections.
Some accuse officials of raising prices to offset campaign expenses, or to raise money for the upcoming presidential election.
“No increase in prices is in any way connected with the upcoming political events. Much better conditions are created for any government and political party not when there is inflation, but on the contrary when products get cheaper. It is much easier to win people’s votes that way than raise prices ostensibly in order to earn some money and trade that money for votes. It is simply absurd,” Prime Minister Serzh Sargsyan said recently.
Sargsyan added that Armenia is only following the world-wide pattern of increase.
Still, as daily debate in media and grocery shops show, questions abound.
Beginning in 2006, the Central Bank adopted a strategy of targeted inflation that has become widespread in international practice in recent years. Under this strategy, it oversees not only the amount of money in the economy, but also other factors that condition inflation.
“And in fact, this approach will enable Central Bank to respond more flexibly to the rapidly changing conditions of the economy and manage inflation in a more efficient way,” the Central Bank’s analysis says.
However, according to economist Aghajanov, there are more accepted ways of managing inflation that are applied all over the world.
“In this case, the state must have strategic reserves, for example certain reserves of wheat for intervention with them to regulate prices. It is quite an acceptable variant, however in Armenia it appears to be inapplicable,” Aghajanov says. “And since the steps are not well calculated, the rate of inflation is unlikely to slow down.”
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- 1813 The Russian-Persian Treaty is signed at Fort Gyulistan (Artsakh). It ended the war that had started in 1804. According to the agreement, Persia recognizes the provinces of Artsakh, Gyandja, Shaki, Shoragual, Talish, Derbent, Ghoobay, Pambak, Zangezoor, Shirvan, Baku, Loree and Shamshadin as belonging to the Russian Empire.
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- 1961 The Armenian SSR decides to rename the Kotayk, Abovian and Adini regions to Ani region.
- 1962 Diasporan Armenians begin a new repatriation program to Armenia.
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